At a recent BOV conference on Maltese SMEs and the EU budget, Karl Herrera, head of incentives at Malta Enterprise, candidly admitted he didn’t know why the “take up” of services was so disappointing.
I would argue that, despite good intentions, it is a failure by the government to understand the behavioural characteristics, motivations of small business owners, the development process and SME business sector dynamics.
It is a fundamental mistake to view small businesses as a single homogeneous grouping with common needs and problems supported by an off-the-peg business support product menu. Small businesses are represented in many sectors, vary in their needs and problems and approach growth differently.
Business development models typically describe these as being: start up, growth and maturity, similar to product life cycles.
The major weakness of this approach is the failure to clearly or consistently address the transition from one development phase to another. As businesses change form and shape during growth, so does the type and level of need.
Growth is not one of regular expansion but involves periods of advance punctuated by discontinuities or transitions, reflecting some qualitative change in the business, to deal with new demanding opportunities.
Each transition presents new risks and new skills may be required to address them.
Transitions require a resource investment and typically stretch management, often to the limits of its capability.
Effective management at transitionary phases is crucial and external support at these stages can make them less painful, as SMEs do not always know how to see a clear way forward. Thus the process of growth is a sequence of transitions followed by periods of consolidation.
Small businesses are typically managed in a very informal fashion – loose organisational structure, informal but frequent communications between staff, with senior management multitasking. Such informality is reflected in their creativity and ability to quickly respond to changing customer needs. As firms grow, informality is problematic and a more professional structure is needed; some owners thus deliberately decide not to grow and stay small.
Why? Many lack the skills to manage growth which often involves a break with established ways of operating, taking the business into unchartered territory with its additional risks and fear of moving out of comfort zones; they are risk averse. Growth cannot be presumed and motivations for setting up a business vary considerably.
Some do not recognise they need assistance and, if they do, will not seek external help as offered by Malta Enterprise, often turning to their professional advisers. Use of external advice by a microbusiness in marketing and strategy is even less common. They have a healthy scepticism of the costs/benefits for publicly funded support from ‘management experts’, believing that they do not understand what is involved in running a business, theirs in particular! Training of staff, too, unless there is career progression, often leads to another firm’s gain.
Malta Enterprise currently provides a number of individual support products which mirror the standard model of business development
Growth is seen as the least important of their objectives. There is nothing automatic about the growth of a business; it has to be willed and managed from the top against strong internal and external constraints requiring both motivation and leadership.
Malta Enterprise currently provides a number of individual support products which mirror the standard model of business development, a key part being the self-employed business advisor. They identify needs and highlight what is available, which is a limited product driven process, often using intimidating language. In the UK, the Small Firms Service in the 1990s faced the same “uptake” problem with SMEs.
An experiment was undertaken in one UK region where the menu and all product names in customer communications were removed and replaced by a simple support process, an extra pair of hands, working alongside owners at its heart, drawing on one or more non time-based business support services, using customer-friendly language.
In the first year, uptake improved dramatically and subsequent qualitative research demonstrated the enthusiasm and value generated by businesses.
The key to success was the creation of full time but independent business advisers whose primary function was to identify those with potential which would benefit from support, stimulating enterprise by acting as a catalyst to a firm, strengthening the mechanisms of business experimentation and growth; it was not just about identifying potential winners but ensuring that winners emerged through market driven processes, supported at appropriate transitionary phases.
Long-term hands-on relationships were crucial, with support when necessary, resulting in trust and empathy from this client driven process. Added value and outcomes replaced volumes and were rolled out nationally.
The issues for Malta Enterprise are:
• Should it prioritise businesses to support – those managed for growth?
• Is it better to work with fewer rather than more and not on a timed basis?
• Should businesses with growth potential but not managed as such be included?
• Identify achievable out-comes or return in improved performance?
• Identify attitudes of management teams which are crucial in each case?
Louis Naudi is a chartered marketeer.